Online Shoppers Gave Singapore Air a Profit Boost

Kyunghee Park , Bloomberg

- Feb 14, 2018 11:00 am

Skift Take

While increased earnings from cargo operations is good news, Singapore Airlines is still battling for passengers in a market that is squeezing it at both ends. A transformation program launched last year was supposed to help, but the carrier hasn’t really said what it plans to do.

Southeast Asia’s biggest carrier reported its best quarterly profit in seven years for the quarter through December as a jump in cargo demand from online shoppers and semi-conductor makers boosted earnings. Scoot, its low-cost unit, also added to the profit growth at the company. Shares rose as much as 2.7 percent Wednesday, the biggest intraday gain in almost three months.

After revealing a surprise loss less than a year ago as a result of intense competition from Gulf-based and budget operators, the pick up in cargo is coming to the rescue of the carrier that is undergoing an internal review of its operations. The business, which is in the process of re-integrating into the main airline in a bid to improve efficiency, reported a 66 percent jump in operating profit in the quarter, the most among its divisions.

“This is mainly driven by improving U.S. and European consumption demand as well as inventory re-stocking,” said Corrine Png, chief executive officer of Singapore-based Crucial Perspective Pte. “Tech and telco-related products, luxury goods, express packages, given the rising e-commerce demand, are fueling this growth.”

Cargo yield — an indicator of profitability from moving a ton of goods per kilometer — rose 12 percent to 30.6 Singapore cents.

The Singapore Air group kicked off a transformation program last year, vowing bold and potentially radical actions to tackle costs as it got squeezed by Middle Eastern carriers and budget operators at both ends. While the company has revealed little else, the process may include job cuts, Chief Executive Officer Goh Choon Phong said in June.

The airline, whose shares have declined 3.6 percent this month, is under pressure to turn its performance around in a year the International Air Transport Association predicts the global airline industry will make a record profit.

“Pressure on yields remains as competitors mount significant capacity in key markets with aggressive pricing,” the company said in a statement Tuesday. “These challenging market conditions have been exacerbated by recent fuel price movements,” it said, referring to gains in crude oil prices.

Net income last quarter rose to S$286.1 million ($216 million), from S$177.2 million a year earlier, the best since end-2010. Operating profit at Scoot rose 48 percent, while that of SilkAir fell 37 percent.

The airline plans to restart non-stop flights to New York and Los Angeles from Singapore in the second half of this year after it takes delivery of Airbus SE’s A350-900 Ultra Long Range aircraft. It’s the launch customer for Boeing Co.’s 787-10 aircraft, which the carrier will receive late next month.